Bankruptcy in the United States

[Makalakumu]

Please comment on this article, it raises some interesting points regarding the cause and culture of debt in this country.

http://moneycentral.msn.com/content/specials/P87472.asp?special=bankrupt

upnorthkyosa

 

[auxprix]

I have to say that it is a poorly written article. I didn't understand alot of what they were talking about, and I'm an economics person. I will say this though:

Recently, my grandmother was approved for bankruptcy. She's been widowed for almost 20 years, and doesn't have a steady income. To get by, she would take out creadit cards. Company after company would offer her one, so she continued to go into high interest debt. Finally, we figured out what was going on and got her help (she was too ashamed to seek it herself).

Now, not everything she did was right. She should have gotten help earlier, and shouldn't have recieved so many creaditcards. However, the companies themselves are the ones who pushed these options without adequately assessing the risk. these companies are often bailed out, especially when it comes to foreign debt, by the government. Remember, the lender should always consider the risk of a default when issuing loans. They should be able to adequately protect themselves without having the government step in. Sure, you see some instances of people cheating on the system, but this is a drastic minority. Certainly, the rules should be fixed to stop aiding this behavior. When it comes down to it though, it's not just reckless borrowing that's causing this problem, it's reckless lending.

 

[MisterMike]

The article looked like a big spin for socialized health care.

 

[Rich Parsons]

I have to say that it is a poorly written article. I didn't understand alot of what they were talking about, and I'm an economics person. I will say this though:

Recently, my grandmother was approved for bankruptcy. She's been widowed for almost 20 years, and doesn't have a steady income. To get by, she would take out creadit cards. Company after company would offer her one, so she continued to go into high interest debt. Finally, we figured out what was going on and got her help (she was too ashamed to seek it herself).

Now, not everything she did was right. She should have gotten help earlier, and shouldn't have recieved so many creaditcards. However, the companies themselves are the ones who pushed these options without adequately assessing the risk. these companies are often bailed out, especially when it comes to foreign debt, by the government. Remember, the lender should always consider the risk of a default when issuing loans. They should be able to adequately protect themselves without having the government step in. Sure, you see some instances of people cheating on the system, but this is a drastic minority. Certainly, the rules should be fixed to stop aiding this behavior. When it comes down to it though, it's not just reckless borrowing that's causing this problem, it's reckless lending.

Not sure, yet I thought at one time the companies that issue credit were to have a certain percentage of bad risk credit members. This was to avoid discrimination or was a result of a discrimination case.


As to backruptcy, I have know people who have done it and then later recovered since they had better jobs and learned from their mistakes.

Some poeple leave home, after high school or college, and expect to go out and buy anything they need, to replace what they have at home from Mom and Dad, that have worked their life to obtain. Now in some cases it is the individuals problme of no understanding, in other cases, not all, it is the parents who never taught the child what it takes to me money, and how to manage it, since they just gave their children what ever the could or wanted. Now this is not an attack on parents and loving their children and wanted to give them anything. You still can do as you wish and can afford, and still insruct the children about balancing check books, and hat work is required to make money.

Just my two cents.

 

[auxprix]

Not sure, yet I thought at one time the companies that issue credit were to have a certain percentage of bad risk credit members. This was to avoid discrimination or was a result of a discrimination case.

I have never heard of such a law. However, I am not heavy into financial law, so that could be the case. Reguardless, I'm talking about cardproviders who issue as many loans (or creadit lines) as possible to make more money. Now, I have no problem with a company making money like this, but I DO have a problem when they complain about it after the load defaults.

Think about when you're buying a product from a store and they offer you the store card. They didn't check your creadit rating or weigh the risks of having you as a holder.

I believe that creadit card mailers work the same way. they just mail out to as many people as they can to get people subscribing to their service. Even people like me, a student with virtually no income, get bombarded with pre-approved credit card offers.

 

[Nightingale]

if you're thinking of bankruptcy, please reconsider.

call your creditors and explain your financial situation, and offer them a lump sum settlement. Try to negotiate that the creditor mark on your credit report "Paid as agreed" or just "Paid" as opposed to anything else, but if it comes down to it, let them report whatever, as long as they discharge the debt.

lump sum settlements are better for your credit, because they don't stay on your report as long, and it shows you at least tried to make good.

Creditors go for lump sum settlements because you've probably already paid the principle several times over in interest, and some money from you in a settlement is better than what they'd probably get if you file bankruptcy (close to zero).

An initial offer of 30 cents on the dollar is usually ok... never offer your maximum first. Lowball them, and they'll counter, and then you settle on something in the middle.

Works best when your accounts have been in default for a while, but will work at anytime, usually, if you can convince them you're a risk, and they'd better take what they can get.

 

[Cruentus]

Well, I'm an Econ guy, language arts/linguistics guy, and a poli-sci guy.

I have to use my poli-sci hat when reading this article.

For that matter, I think that it was very well written for those who know the issues beforehand. Unfortunitaly, if you don't know the issues, then you may not understand it.

Consumerism encourages a high debt ratio in this country, where essentially people become enslaved by their debt. The new law is designed to help those who don't need it (60K and upward incomes), rather then help those who do. The people in the lower income brackets are told that they just need "to better manage their money," while people in the higher brackets get the breaks. Business as usual.

On to health care, since it was mentioned, a nationalized system would combat bankruptsy. Businesses have to pay large quantities to health care costs, and 1 out of 5 individuals go bankrupt due to medical bills that they can't pay. Our healthcare system has a major problem because it is controlled by an industry who price gouges the insurance co., so the insurance co. have justification to charge more and more money, and both groups have lobbiest in Washington to make it so. WHo benefits? Ins. and medical companies. WHo suffers? American people. If there is a way to solve the problem without having a nationalized system, let me know. However, as it stands right now, a nationalized system would hep combat both bankrupsy and health care problems that we have.

On to banks allowing people to borrow being the problem. It kinda is, but kinda ain't the problem. The article proposes a good solution, actually, so let me translate. If you regulate better how much interest banks (credit cards especially) can charge, then they will be more careful about how they loan out money, because they can't enslave you to 22% interest rates for being late on one payment, etc. So, people will only be allowed to borrow less...which will in turn cause people to be a bit more careful. Now...what the article did not say, but that I am saying, is we need to have a campaign that will combat consumerism. Consumerism says "buy more, and borrow if you have too!" If people change their outlook on this, they won't be in the position to borrow as much as they do.

What the article addresses briefly, but not in enough words, is the real problem...and that real problem is that the living wage in our country has gone down so much that people are having to borrow to live, not just to consume. This is the problem that needs to be addressed; those people who make under 60K, instead of giving the breaks to the people who make over 60K.

Bla bla bla...

Yours,

Me!

 

[Rich Parsons]

I have never heard of such a law. However, I am not heavy into financial law, so that could be the case. Reguardless, I'm talking about cardproviders who issue as many loans (or creadit lines) as possible to make more money. Now, I have no problem with a company making money like this, but I DO have a problem when they complain about it after the load defaults.

Think about when you're buying a product from a store and they offer you the store card. They didn't check your creadit rating or weigh the risks of having you as a holder.

I believe that creadit card mailers work the same way. they just mail out to as many people as they can to get people subscribing to their service. Even people like me, a student with virtually no income, get bombarded with pre-approved credit card offers.

Hmmmm, one of the things I found out about as I entered my divorce was that the house was in Foreclosure and my car (* not hers *) was up for reposession with only three months left to pay. I was able to pay off teh attorneys to get the house out of FC and the bank to get the car from repo. It took me years to get credit again. I was actully signed up for a masters course and they sent me a card. Once they checked my history I was denied. I called them back and with some talking I was able to get a 22% $200 limit card. My credit did not really take off until I bought a car and paid it off, and then also bought a house and then refinanced. This being 6 years after the FC, and it still on my history, I now have Platnum cards with low interest rates. Oh and during the process, I could not get a Sears, or JC Penny's , or Home Depot, or anything like them. So, I know they check. As to students and I asked them this, they assumed since you are a student you will get help from your parents to pay your bills. Just a data point for my comment above, where now the industry expects the parents to pay since so many have.

 

[Cruentus]

if you're thinking of bankruptcy, please reconsider.

call your creditors and explain your financial situation, and offer them a lump sum settlement. Try to negotiate that the creditor mark on your credit report "Paid as agreed" or just "Paid" as opposed to anything else, but if it comes down to it, let them report whatever, as long as they discharge the debt.

lump sum settlements are better for your credit, because they don't stay on your report as long, and it shows you at least tried to make good.

Creditors go for lump sum settlements because you've probably already paid the principle several times over in interest, and some money from you in a settlement is better than what they'd probably get if you file bankruptcy (close to zero).

An initial offer of 30 cents on the dollar is usually ok... never offer your maximum first. Lowball them, and they'll counter, and then you settle on something in the middle.

Works best when your accounts have been in default for a while, but will work at anytime, usually, if you can convince them you're a risk, and they'd better take what they can get.

Very good advise Nightingale! I did this when I had bad debt from college...now I am debt free except for a small amount on student loans, and fiancee's car payment!

:asian:

 

[Makalakumu]

The article looked like a big spin for socialized health care.

Here are a few quotes from the article...

Better access to health insurance. Medical bills are a factor in one out of five consumer bankruptcies, and Warren’s research shows they are a direct cause of one in 10 filings.

By contrast, medical bills are a negligible factor in countries with universal health insurance. In Canada, for example, the consumer bankruptcy rate per capita is less than one-third that of the U.S.

The problem isn’t just the uninsured. As more employers shift the burden of insurance costs to their workers, many families are finding themselves unable to meet higher co-payments and out-of-pocket deductibles.

Nothing short of universal insurance would end this problem, although almost any effort to extend coverage to the 43 million uninsured Americans would have some effect in curbing the bankruptcy rate.

Mike, when you look at the evidence, the argument makes sense to me. Perhaps the italicized statement goes too far though. Can you think of another solution?

 

[Makalakumu]

Now this is an interesting point...

A return to usury laws. The effective end of usury laws in 1978 led to a massive increase in credit, including credit extended to troubled borrowers. Capping the amount of interest creditors can charge would force them to get smarter about the risks they take, contends Warren, co-author of “The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke.”

Many families would have less access to credit, but according to Warren that’s not necessarily a bad thing. If these families have to pay two, three or 10 times the market rate for a loan, they probably are in no shape to afford that loan in the first place, she said.

Capping interest rates also would make it tougher for bankrupts to get credit again after filing. That would force many to learn how to live on cash and make bankruptcy more of a hardship -- perhaps deterring bankrupts from filing again.

Currently, bankruptcy filers are often offered credit cards before their cases have even closed, and many can qualify for high-rate mortgage and auto loans within months.

I am definately seeing an explosion of credit cards in our culture and I didn't know that a repeal of the usury laws was the cause of such reckless lending practice. I wonder if the financial lobby in Washington had this type of exploitation in mind when payed for the repealing of these laws...